House value question

[Former member 61586]

When you apply for a home loan, the lending institution sends a valuator to the property to valuate it.

How do you find out the result of this valuation? Is it the part of the loan agreement where it says the property needs to be insured for a minimum of X amount? Is that X amount the value the valuator gave it?

The reason I ask, is because I applied with SA homeloans and their minimum insure amount is about R200k higher than the purchase amount. Standard banks minimum insure amount on the other hand is about R100k less than the purchase amount which is strange because they are granting the loan.

Any thoughts?

 

[broken1]

The insurance amount is a separate value from the market valuation.

The insurance amount is basically how much it would cost to rebuild the property. So, in a market where building costs are increasing and the cost of building is more than the cost of buying, the insurance value will be greater than the market value. Also, if building costs are low - then the insurance value is less than the cost of building.

The market value is more in-line with what you can compare with the purchase price. This is based on the valuers experience and various stats he picks up from the market based on the selling prices of similar properties in the area. You will find the bank very reluctant to give you this figure, as number 1, you didn't pay for it and number 2 it was done for their sole purpose of valuing their security in the transaction, not with a value in use in mind (i.e. the long term value you might get out of the property). They also don't want you to use their valuation to start negotiating with the sellers for whatever reason as they could face legal liability if problems come up on their valuation.

The reason why the two insurance values are different is because of different assumptions.

It's hard for the two banks to know exactly what the cost per sqm is to build the house you are purchasing. Standard Bank might be applying R6500 a square meter because it's an average they use accross the residential sector. SAHomeloans could be more conservative and use R7500 a square, or be applying things like "better finishes" add R100 a square, tiles vs carpets add R100 a square. It just depends on their risk model and valuation techniques.

 

[etwylite]

The market value is more in-line with what you can compare with the purchase price. This is based on the valuers experience and various stats he picks up from the market based on the selling prices of similar properties in the area. You will find the bank very reluctant to give you this figure, as number 1, you didn't pay for it and number 2 it was done for their sole purpose of valuing their security in the transaction, not with a value in use in mind (i.e. the long term value you might get out of the property). They also don't want you to use their valuation to start negotiating with the sellers for whatever reason as they could face legal liability if problems come up on their valuation.

QUOTE]

but you DO pay for the valuation to be done.

 

[broken1]

but you DO pay for the valuation to be done.

Nope.

You only pay the NCA fee of R5700 which covers administration costs, the liquidity of the funds until you withdraw them (the bank has to make the funds available from the time they issue Guarantees and you only start paying the interest when transfer goes through) and for the paperwork etc involved.

The valuation can easily cost R3500 or more for a R1 000 000 house. The bank absorbs this cost as they are not allowed to charge more than R5700 under NCA.

On Commercial Property loans, banks charge a +-1% administration fee and an additional fee for the valuation.